What is CPR 3.18?

Civil Procedure Rule (CPR) 3.18 is a provision in the civil litigation framework, that forms part of the general Case and Costs Management rules, governing how Courts assess costs in cases where a costs management order has been made.

CPR 3.18 plays a key role in promoting proportionality, efficiency, and fairness in legal costs, ensuring that parties adhere to their approved budgets while allowing for reasonable adjustments where justified.

Under CPR 3.18, the court will generally not depart from a previously approved or agreed budget unless there is good reason to do so. This principle helps to provide certainty in litigation costs and discourages unnecessary or excessive expenditure. However, it also allows flexibility in cases where unforeseen circumstances arise, balancing the need for control with the realities of complex litigation.

This rule is particularly relevant in the context of costs management hearings and detailed assessments, influencing how law firms and litigants plan and recover costs.

Civil Procedure Rule 3.18 states the following:

“3.18 In any case where a costs management order has been made, when assessing costs on the standard basis, the court will –

(a) have regard to the receiving party’s last approved or agreed budgeted costs for each phase of the proceedings;

(b) not depart from such approved or agreed budgeted costs unless satisfied that there is good reason to do so; and

(c) take into account any comments made pursuant to rule 3.17(3) and recorded on the face of the order.

(Attention is drawn to rules 44.3(2)(a) and 44.3(5), which concern proportionality of costs.)”

An important aspect to note from CPR 3.18, is that it only applies when costs are to be assessed on a standard basis.  When costs are to be determined on an indemnity basis, budgeting is disapplied and the costs claimed can exceed any previously approved Costs Budget without having to demonstrate a “good reason” to do so.

When does Costs Budgeting Apply?

Costs budgets (also known as a Precedent H) were introduced as part of the Jackson Reforms in 2013 to bring further control and certainty to costs in legal disputes, and to narrow the aspects in dispute on detailed assessment.

In accordance with CPR 3.13, Costs Budgets are required in all Multi-Track cases unless the Court orders otherwise. The purpose of this requirement is to regulate costs from an early stage of litigation to establish a budget that effectively serves as a cap each phase of the proceedings.

The court reviews these budgets, makes necessary adjustments, and then issues a Costs Management Order (CMO) under CPR 3.15. This process sets clear financial boundaries for how much each party is expected to spend on different phases of litigation.

CPR 3.18 becomes relevant at the stage of detailed cost assessment, once the main claim has resolved and it comes to determining the reasonable costs of the litigation.  At this juncture, once the Bill has been produced, the parties during negotiations (or the Court at any detailed assessment hearing) is required to take into account the approved or agreed costs budget. This rule specifically states that the Court will not depart from the approved budget unless there is a “good reason” to do so. This provision ensures that costs remain predictable and that parties cannot recover sums significantly higher than those allowed in their budget unless circumstances arise.

What is a Costs Budget?

These are the costs that will be approved/managed by the Court and reflect future work to be undertaken in the litigation. Such costs fall into various phases, including:

1. Issues/Statements of case – Work relating to settling pleadings and finalising Schedules of Loss;
2. CMC – Quite often there are no future costs predicted, given that all costs up to the date of the CCMC are treated as incurred. Estimated costs will be claimed if it is expected there will be future CMCs;
3. Disclosure – Settling disclosure lists and considering any disclosure received;
4. Witness Statements – Attending upon and preparing any witness statements, as well as dealing with the costs of exchange of witness evidence and considering opposing party evidence;
5. Expert Reports – Obtaining any future expert reports, including the costs of conferences with Counsel and joint statements between experts of like discipline for each party;
6. Pre-Trial Review (PTR) – Settling the Pre-Trial Checklist, costs of attending any PTR as well as payment of the hearing fee.
7. Trial preparation – Costs of all preparatory work for Trial, including creation of bundles, pre-trial conferences and Counsel’s brief fee;
8. Trial – Costs of attending the Trial itself, mainly limited to Solicitor attendance time, Counsel refresher fees and any expert attendance fees;
9. ADR – Costs associated in engaging with negotiations or alternatives, including Round Table Meetings (RTM), mediation or other ADR alternative.
10. Contingents – Additional Contingent phases can be added to the budget. These should not be utilised for unlimited permutations/variations, and should only be included for aspects of the litigation which are substantially likely to arise, but at the time of preparation of the Budget are not definitively known to be required e.g. a party may have prepared a Budget for a single say Trial, but included a Contingent for a 2 or 3 day Trial in the event that the Court expects to list the matter for a longer trial.

Full Budget preparation guidance is provided online here.

Harrison v University Hospitals Coventry & Warwickhire NHS Trust

In Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792, the Court of Appeal addressed the issue of whether a party can recover costs beyond an approved Costs Budget. The case concerned the Defendant’s request to reduce the Claimant’s costs below the amount set out in the approved budget.

The central point in the case was the court’s interpretation of CPR 3.18, particularly in relation to the binding nature of an approved Costs Budget. The court made it clear that, while CPR 3.18 requires the Court to adhere to the costs budget that has been approved or agreed, a departure from the budget is possible with “good reason”, though it should be noted this is a high threshold.

In the case, the Claimant had successfully argued that the costs incurred were reasonable and proportionate, and the Court found that the budgeted amounts were still within the bounds of the work required for the case.

The court also clarified that the “good reason” standard set by CPR 3.18 must be applied in a realistic and flexible manner, allowing for adjustments when circumstances change unexpectedly during the course of litigation. This ruling also underscores the need for detailed, well-prepared costs budgets, as courts will rely on them as the starting point for assessing whether any adjustments are appropriate.

The case of Harrison essentially set the common law basis upon how costs are now assessed as against an approved Budget, with the rule essentially being that if the costs incurred are within the scope of an approved Budget, they should be allowed as claimed generally.

What Constitutes a “Good Reason” to Depart from a Budget?

One of the most debated aspects of CPR 3.18 is what qualifies as a good reason to depart from an approved budget.

As per the above, “good reason” to deviate is a high threshold to prove before departing from a Budget.  The general rule of thumb is that, if such costs could reasonably have been foreseen and quantified at the time of preparing the original Costs Budget/making of the Costs Management Order, then there is not a good reason to depart from the approved Budget, and the Receiving Party should have factored this into the original Budget.

Courts have provided guidance over the years on this complex issue, with some common examples including:

• Significant change in the complexity or scope of the case – If the nature or scope of the cases changes substantially after the budget has been approved, this may justify a departure. It should be noted however, that an increase or decrease in the value of litigation is not in itself a significant development or complexity on its own (unless accompanied by significant changes in evidential requirements or running of the proceedings), and therefore may not constitute a “good reason” to depart, pursuant to Jallow v Ministry of Defence [2018] EWHC B7 (Costs)and Churchill v Boot [2016] EWHC 1322 (QB).
• Unforeseen developments in litigation – Unexpected event that increase the workload or costs may be a good reason for departing from the budget.  Examples could include significant increases in Disclosure costs in a personal injury claim, because the opposing party has conducted covert surveillance and produced unexpected evidence to challenge the legitimacy of the claim.  Another reasonable example to deviate from the Budget would include if the Trial has ultimately proceeded longer than was originally anticipated/budgeted for.
• Opponent’s conduct leading to increased costs – For example, if an opponent delays proceedings, submits excessive disclosure requests, or makes unreasonable procedural applications, the affected party may incur additional costs beyond their original budget.
• Errors or omissions in the original budget – If a genuine mistake or oversight in preparing the budget is later identified, the Court is unlikely to consider this a good reason for departure.  Costs Budgets, like any Court documents, are expected to be accurate and a failure to do so is unlikely to be rewarded with a reprieve to recover more costs if no pro-active action was taken during the Costs Management process to correct any errors.
• Additional experts or witness evidence required – The setting of Costs Budgets is tied to the directions set by the Court.  Where a party initially anticipated a certain number of expert reports or witness statements but later finds that additional evidence is necessary, this may justify exceeding the budgeted costs for those phases of litigation.  It is recommended that if directions are being sought from the Court for additional evidential requirements, that an application is made for a Precedent T at the same time to amend your Costs Budget.  Failure to proactively update your Budget is likely to go against any “good reason” argument made retrospectively during detailed assessment.

“Good Reason” to Depart from a Budget Downwards

The “good reason” argument to deviate from an approved Costs Budget applies equally as to exceptionality, in terms of seeking to depart from a Budget downwards as well as upwards.

In Nash v Ministry of Defence [2018] EWHC B4 (Costs) it was unsuccessfully argued by a Paying Party that a reduction in hourly rates to incurred costs during a costs assessment, should equally apply to approved costs within a Bill.  This was ultimately considered an attempt to depart from an approved Budget, and pursuant to Harrison, it was considered that the detailed assessment should not look to unpick the particulars of an approved Costs Budget if the amounts incurred by a Receiving Party fell within those previously approved by the Court as part of any Costs Management Order.  As such, changes in hourly rates (either due to reductions on assessment to incurred costs, or if rates have been increased after Budgets have been approved) was deemed to not be a good reason to depart from the approved Budget.

A degree of success was also enjoyed by Paying Parties initially in the decision of Barts Health NHS Trust  v Salmon, in which it was determined that underspend within a phase, or non-completion of the work within a phase, was considered a “good reason” to depart downwards from an approved Budget.

This however, led to the somewhat unusual conclusion that in order for a Receiving Party to recoup their approved Budget figures, they would always have to ensure overspend of each phase, and Salmon would also lead to the undesirable outcome of Costs Budgets leading to satellite litigation in detailed assessment, when the purpose was to narrow the issues.

Ultimately a common sense decision was reached in subsequent litigation, with regards to addressing underspend in CPR 3.18 assessments, specifically Chapman -v- Norfolk & Norwich University Hospitals NHS Foundation Trust in which the Court discouraged a “micro-assessment” of each phase on detailed assessment, and ultimately that costs that fell within the scope of an approved Budget should be permitted as claimed. 

How can ARC Costs Assist with Compliance with CPR 3.18?

At ARC Costs, we are an independent expert team of Costs Lawyers and experienced Costs Draftsman. As such, we are able to represent Claimants or Defendants in litigation, and Receiving or Paying Parties, and our input is not limited to costs budgeting process.

In respect of CPR 3.18, we can assist with preparing your Costs Budget and quantifying future costs. Once filed and served, Costs Budgets still need to be agreed and approved by the Court, and we can provide assistance with settling of Budget Discussion Reports (Precedent R) as well as Budget negotiations, or providing representation at any CCMC.

If successful during litigation, you will be entitled to recover your costs, upon which we can assist in preparation of your Bill of Costs.  For your Bill to be compliant to enable a CPR 3.18 assessment, the format will need to be in the correct electronic and phased format, and the forensic nature of the work is highly specialist in nature.

For assistance with your costs related queries, contact one of the team at info@arccosts.co.uk, or speak to one of our experts by calling 01204 397302.

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